How Big Is Big Enough?

There used to be one fairly safe assumption you could make about Inc. 500 companies: They were committed to getting as big as they could as fast as they could. Granted, they all faced constraints of one sort or another -- limited access to capital, shortages of qualified people, insufficient cash flow, whatever -- but their common desire to become bigger companies was never in doubt. Not anymore. This year's Inc. 500 includes a small group of businesses that have already applied the brakes.

Consider the Works Corp., an Internet retailer based in Boise, Idaho, that has chalked up average annual sales growth of 208% since 1999, landing at No. 158 on the 2004 list. Founder and CEO Bruce Goode says he is happy to make the Inc. 500, but he really doesn't want the company to get much bigger. Right now he has six full-time and two part-time people on staff, and he believes that's just about the right number. "I may add one person in the next couple of years," he says, "but that's it. I don't want to get big."

Robert Catlin of Signature Mortgage (No. 459) in Canton, Ohio, feels pretty much the same way. He's developed a system that allows his 16 employees to outperform mortgage lenders with three or four times as many people, and there's no reason to believe that the approach wouldn't be just as effective in other midsize markets around the country. But Catlin isn't interested in expanding. "People tell me all the time, 'You're crazy, pal. You're missing a golden opportunity," he says. "I say, 'Hey, I'm doing just fine. I have control. I have freedom. I have family time and travel time. What more can I ask for?"

Then there's Robert Moore, the co-founder and CEO of Solid Earth (No. 308) in Huntsville, Ala., which provides an Internet-based multiple listings service to real estate agent associations. He and his partner have decided to restrict growth by taking on only four or five new associations per year. To do more, they'd have to expand their 11-person work force -- something they don't want to do. "There's definitely an advantage to having a small team that's devoted, well paid, and happy," Moore says. "I don't think I could get the same level of commitment from a larger group."

These three entrepreneurs are hardly representative of this year's Inc. 500 CEOs. Frankly, it's surprising to find them in that group at all. Their businesses challenge a fundamental belief we've long held about Inc. 500 companies -- namely, that they are engines of job generation. And their founders, it turns out, aren't the hard-charging, sales-obsessed workaholics we often assume entrepreneurs must be in order to build companies capable of growing fast enough to make the list.

The question is, are they an aberration or the leading edge of a trend? Over the years, we've noted changes in the profile of the typical Inc. 500 CEO. Companies that made the list in the 1980s were generally founded and led by self-taught, street-smart entrepreneurs who loved the adventure of building a business. In the 1990s, we saw the emergence of professional entrepreneurs, many of them with M.B.A.'s, who had often gained experience working for large companies and started their own businesses with the goal of going public or getting acquired. It's too soon to say with any confidence that Goode, Catlin, and Moore are harbingers of the next generation of Inc. 500 CEOs, but we may be able to discern clues about the shifting priorities of company builders by looking at the paths that led them to decide they needed to moderate their companies' growth.

For Bruce Goode of the Works Corp., it was a lifestyle decision. A recovering workaholic, he says he has more or less taken the past year off. He's learned how to fly an ultralight airplane and how to carve totem poles with a chain saw. He and his wife, Jody, have gone kayaking in Alaska and taken cruises to Mexico and the Bahamas. He has bought 40 acres of timberland in the mountains north of Boise and remodeled a 100-year-old log cabin on the property.

Not that he ignores his business. He puts in about 30 minutes a day dealing with company matters by telephone and Internet, and he drops by the office a couple of times a week -- "to say hi," he says -- when he's in town. In addition, he spends a considerable amount of time investigating new ventures that the Works Corp. -- which distributes home and garden products through several hundred websites it owns -- might pursue in the future.

For the moment, at least, Goode is content. "We've hit a number where we can make enough money to live very comfortably and travel, and everybody's happy," he says. "Too much growth could screw it up."

He didn't always hold that view. Goode used to work long days and long weeks. He and Jody owned a small garden center in Boise. About 10 years ago, Goode began putting up websites in an effort to sell garden products during the winter to people in other parts of the country. He was so successful that he kept expanding his online product offerings and adding websites until finally it dawned on him that he and Jody really didn't need the store anymore. "The few minutes a day we could get away from people in the store asking questions about $9 items, we could go online and sell $1,000 items," Goode says.

At about the same time, he and Jody began questioning their entire approach to business. "We were working like dogs," he says. "Sometimes I'd work all night putting up sites. I was getting burned out, and I was completely out of shape sitting there eating at the computer all day. I began realizing I was a prisoner of the business. We said to ourselves, 'There's got to be more to life than trying to make as much money as possible whether you can spend it or not.' What we really wanted was freedom. So we completely changed our way of thinking -- from having our whole life be about building the business to having the business be a way to sustain the kind of life we wanted."

That meant, among other things, closing the garden store. "We had a really good niche market here," Goode says. "But we realized we could do even better if we shut down the store and concentrated on the Internet. That would also give us freedom to go camping or take a vacation. We hadn't had one in seven years." First, however, they had to hire some employees and build a team.

The team is indeed a key component of each of these companies. The CEOs all credit their success to having a small, cohesive, committed work force. It is precisely the effectiveness of their teams that the CEOs fear might be lost if the companies were to grow too fast.

Goode's team consists of a webmaster, an office manager, and six other people whom he trusts implicitly to run the Works Corp. while he's away. He says he feels lucky to have found them. He strives to treat them as partners rather than employees, a word he has banned at the company. For example, everyone, including Goode and his wife, is paid a base salary plus a percentage of monthly revenue above a certain threshold. This year that amount is $175,000 per month. The percentage a person gets increases with each year of service. If revenue is less than $175,000 in any given month, no one gets revenue sharing. In addition, there are bonuses whenever the company has monthly sales higher than it had in the same month the year before.

As for increases in base compensation, they are determined not by individual performance but by the achievement of company goals. Thus, everyone gets a raise of 50 cents an hour when Goode is able to fulfill a goal he set for the company, such as buying an apartment complex. (Goode wants to acquire two.) When the company pays off what it owes on the timber property up north, everyone will get a $1-per-hour raise. The idea, Goode says, is to eliminate the confusion and misunderstanding surrounding decisions to grant wage increases. If there are no raises in any given year, everybody knows why. In the same egalitarian spirit, the cabin on the timber property is available for use by anyone in the company. Meanwhile, Goode is subdividing the property into lots that he will give to people when they reach their 10th anniversary with the Works Corp.